EU paymaster Merkel guarded on new aid for Greece

Published May 10, 2011

Reuters

By Stephen Brown and Ingrid Melander

BERLIN/ATHENS (Reuters) - German Chancellor Angela Merkel, Europe's reluctant paymaster, said on Tuesday she could only discuss further aid for Greece after EU and IMF officials report on implementation of its existing rescue plan.

Speaking to foreign correspondents in Berlin, Merkel did not rule out additional funding for Athens, or a possible fresh easing of terms on its 110 billion euro ($157 billion) bailout, and she voiced confidence that the German parliament would back a permanent bailout mechanism for the euro zone.

"I need to analyze the findings of the European Central Bank, European Commission and International Monetary Fund first and I can't comment before that," she said. "Anything else would not help Greece or Europe.

A source with direct knowledge of the joint inspection mission visiting Athens said EU and IMF officials had not yet concluded whether Greece had met targets required to receive the next tranche of aid under its existing aid deal.

He stressed the inspectors were not discussing a new bailout package with the Greek government, which has acknowledged it may not be able to return to capital markets next year as planned.

A source in Germany's ruling coalition said EU finance ministers were talking about "reprofiling" Greece's existing bailout loans with the voluntary inclusion of private investors.

That could entail extending the maturity on existing loans and a further reduction in the interest rate.

However, he said there was no mention of a new 60 billion euro ($85.71 billion) aid package, which Dow Jones Newswires and business daily Handelsblatt reported was under preparation.

"They are discussing reprofiling the rescue loans and the possibility of involving the private sector on a voluntary basis," said the source, who asked not to be identified.

French Economy Minister Christine Lagarde, asked about more aid for Greece on a visit to Zurich, said: "We have been rescuing for a year and we will keep up." She gave no details.

In Strasbourg, EU Monetary Affairs Commissioner Olli Rehn said it was premature to talk about a new package for Greece now but he expected a decision in a few weeks' time on the next steps to tackle Athens' refinancing needs.

EURO, SHARES STEADY

Euro zone markets steadied amid growing expectations that Greece will receive additional aid to avert an early debt restructuring that could force investors to take heavy losses.

But Greek and EU officials said reports that Athens would get a second bailout of 60 billion euros next month were either plain wrong, or at least highly premature, insisting talks on further assistance were only at an exploratory stage.

Analysts said the figure was merely a reflection of the amount that Athens is meant to raise on capital markets in 2012 and 2013 under its current EU/IMF program.

The euro, which hit a three-week low against the dollar on Monday after ratings agency S&P downgraded Greece deeper into junk territory and said it might have to write off up to 70 percent of its debt, regained some ground.

European shares rose partly due to a growing belief that the European Union would act to support Athens and prevent forced write-downs on its 327 billion euro debt mountain. The cost of insuring Greek debt against default fell slightly.

But Greece paid an increased yield of 4.88 percent to sell six-month treasury bills on Tuesday to refinance maturing debt, higher than last month and well above the 4.2 percent average rate on its IMF and EU loans.

Austrian Finance Minister Maria Fekter was quoted as saying Greece might be given longer to repay 110 billion euros in loans under its existing EU/IMF rescue plan, and the interest rate could be cut again but rejected any thought of restructuring.

"POLITICAL SUICIDE"

The chairman of euro zone finance ministers, Jean-Claude Juncker, said after senior euro zone policymakers met last Friday there was a consensus that Greece would need a second adjustment program.

Slovakia's prime minister, Iveta Radicova, told Reuters Insider television in an interview that restructuring of Greece's debt would become inevitable at some point, and the private sector should be involved.

"The crisis in Greece is so deep that without such steps, any kind of only financial instruments is not helpful," she said.

Yet ECB policymakers kept up a barrage of dire warnings against such a move, despite widespread market expectations.

ECB governing council member Ewald Nowotny of Austria said Greece should be given more time to repay financial aid rather than issuing new loans. A restructuring "would immediately have massive consequences for the Greek banking system and for the banking system overall," he told Austrian radio. "That would only heighten the crisis."

ECB executive board member Lorenzo Bini Smaghi said a euro zone debt default or restructuring would be "political suicide."

Speaking in Florence, Bini Smaghi said Greece was a rich country with assets it could sell to pay down its debt.

The EU's Rehn said he was confident EU finance ministers, including his native Finland, would back a 78 billion euro rescue package next week for Portugal, the latest euro zone member to require a bailout after Greece and Ireland.

Finland's Center Party, which lost seats in elections last month and plans to go into opposition, said it would back the Portuguese bailout in parliament, helping prime minister-elect Jyrki Kaitinen toward a majority despite fierce opposition from the populist True Finns party.